Private capital holding, financial awareness of government and steadying operation of banks: Evidence from China

Based on the panel data of 123 city commercial banks in China from 2007 to 2017, we use the dynamic panel system GMM estimation method to empirically test the impact of private capital holdings on the stability of city commercial banks. The results show that private capital holding improves the operating performance of city commercial banks, reduces the volatility of return on total assets, and is conducive to the stability of city commercial banks. Furthermore, the lack of financial awareness of local governments has led to the negative impact of private capital, that is, the stability of the banks has declined.


Review comments: major revision
Question 1: 123 city construction banks are used as individuals in the panel data. Then how is the data of "Finawa" (the government's financial awareness) collected and obtained? The author said it was obtained from the annual reports of 5 financial institutions: banks, insurances, securities, funds and trusts. Are these 5 financial institutions related to 123 city China Construction banks?
Please explain. Similarly, how does the author relate GDP to individual city construction banks?
Please answer. Does the reviewer mean that this paper uses bank-city-level panel data or bank-level panel data?
Question 2: If it is bank-city level panel data, the data of GDP should be specific to city level instead of provincial level panel data obtained by National Bureau of Statistics. Please kindly find data from "China City Statistical Yearbook" for matching (according to the reviewer, this part of data should be found).

Suggestion 1:
Since "Financial Awareness of Government" (Finawa) works on "the steady operation of banks" (ln-Z) through "Private capital holding" (Priv), That is, it (Finawa) plays an intermediary role, so in subsection 2 of "2Literature review and research hypothesis", It should not be "Financial awareness of government and steady operation of banks", please correct the title of subsubsection 2., modify Hypothesis 2 and modify the theoretical analysis.
3 Suggestion 2: SYS-GMM method was adopted in this paper to mainly solve the endogeneity of explained variables and lagged explained variables, which could not solve the problem of omission of important variables. Adding control variables could solve the endogeneity problem caused by missing variables. Therefore, please correct this statement. In addition, control variables are also included in this article. Please explain there that model endogeneity problems caused by missing variables can be solved.

Suggestion 3:
In "measures", the author says that the time trend item YEAR is added to control the time effect, but it is not included in the "model expression" (YEAR is not included in the control variable). Please add it in order to make the model expression more complete.
Suggestion 4: SYS-GMM is used in this paper, so whether the applicable conditions of SYS-GMM are applicable should be explained. Please kindly give a supplementary explanation (such as: automatic correlation test of random disturbance term, over-recognition test). Table A1.Variable definitions should appear in the text, not in the appendix. Only in this way can readers understand. It is suggested to add "3 Data and methods", and add a subsection of "Variable Description", in which details are explained: 1) explained variables;2) Core explanatory variable;3) Control variables, and attach " Table A1.Variable definitions", so that readers have a detailed understanding of variable selection.(For example, how the explained variable ln_Z was obtained, although the author explains a little in the "results" section, please explain in the "variable description" section.) Suggestion 6: Please add a subsection of "Stability test of variable data" to "4Results and discussion" to make the analysis of empirical results more complete (although the short panel data is basically stable).

Suggestion 7:
In general, the endogeneity problem is basically solved using the SYS-GMM method. However, the author also mentioned "the endogeneity problem that the core explanatory variable and the explained variable may be causal to each other". Since this is taken into consideration, please kindly add a part of "6 Endogeneity explanation", and please elaborate in this part.
Suggestion 8: In "5 Robustness checks", the method of replacing core explanatory variables (two replacement variables are found) is used to test robustness. Please kindly ask the author to explain it in two subsections, so that readers can be clearer. Suggestion 9: "Note" in Table2-Table5 is usually placed under the table, please correct them.
Suggestion 10: A subsection "Future prospects" should be added to "Conclusions and Enlightenments", that is, "Future prospects" should be included.
Suggestion 11: Please be careful to correct translation errors (for example, 1)it is better to use the present tense in the "abstract" rather than the past tense; 2) Line 28: We attempts to illustrate that the introduction of private capital is conducive to the release of the potential efficiency of the 4 CCBs, but the result is closely linked with the financial awareness of the government.; 3) Line 34: we sets up the index of government financial awareness based on the data of the top ten shareholders of 123 CCBs from 2007 to 2017 in China. etc.) and standardize the reference format of the article.